As competition heats up, players in South Africa’s telecommunications industry may have to team up to grow their businesses.
So says Vodacom chief executive Shameel Joosub, who spoke to the Mail & Guardian this week about the cell phone operator’s interim results, two major acquisitions and diversifying its revenue.
This came amid speculation that MTN is in a bid to buy its partly state-owned competitor Telkom — which, during the pandemic, became South Africa’s third-largest cell phone operator, nudging out Cell C. With more than 40% of the market, Vodacom is the country’s leading telecommunications company.
Both MTN and Telkom have denied reports that a takeover is on the table. But, if a deal is inked between the two, it could signal a major move towards unseating Vodacom from its top position.
Joosub would not directly comment on the speculation, but noted that consolidation is accelerating globally. “You are seeing that. And I think one of the big things that we need to look at is how to get telcos to invest in some of these new opportunities, like fibre and so on.
“So some in-market consolidations will have to take place for the telcos to invest more into some of these new areas.”
Industry players, Joosub said, have to identify new revenue streams if they want to continue to grow. “I think diversification of revenues is becoming more important in telco going forward than it was in the past,” Joosub said.
Vodacom’s strategy has two parts. First, the cell phone operator is expanding into new markets such as Ethiopia and Egypt. Second, Vodacom is diversifying its revenue by cementing its position in the financial services industry.
“About 17% of our revenue now comes from new services at the group level. And we’d like that to be between 25% to 30% by 2026,” Joosub said.
Joosub spoke to the M&G after the release of the company’s interim results earlier in the week. Vodacom reported that in the six months ending in September, the group drew in 6.2-million new customers and increased its revenue by 4.2%.
Vodacom’s interim results were released a week after the group announced two major deals, including the acquisition of a 30% of Community Investment Ventures Holdings’ (CIVH) fibre business. Under the second deal, CIVH, whose biggest shareholder is Johann Rupert’s Remgro, will transfer its fibre assets Dark Fibre Africa and Vumatel into a newly formed Infraco.
“Combining our assets with Vumatel is quite compelling for South Africa,” Joosub said this week, explaining that the deal means that multiple internet service providers will be able to sell fibre to both businesses and homes.
“And then, of course, we are contributing cash, which will also allow for further expansion. So I think it’s very exciting,” the Vodacom boss added.
The deal is still subject to regulatory approval. Peter Takaendesa, head of equities at Mergence Investment Managers, said competition concerns may be flagged, but this will depend on what remedies may be put in place to satisfy the Competition Commission.
“Maybe less of a complication is that the deal doesn’t include spectrum rights. Whereas, when Vodacom tried to acquire Neotel, it was initially blocked because of Neotel’s spectrum business,” Takaendesa added.
“But I guess then, with Vodacom being also quite a sizeable player within fibre, it is not as straightforward … There may still be issues.”
Fibre, Joosub said, represents an opportunity for telcos to expand. “You don’t have to have fibre. But I think, if you are looking for a new growth area, fibre is definitely a new opportunity.”
Last week, the cell phone operator also announced its acquisition of a majority stake in Vodafone Egypt from its UK-based parent company, Vodafone. The remaining 45% of Vodafone Egypt will remain in the hands of Telecom Egypt, the state-owned fixed-line operator.
With 280-million subscribers, MTN is the largest cell phone network operator in Africa, having aggressively expanded to markets others have steered clear of.
Earlier this year, Vodacom beat out MTN in winning a licence to operate in Ethiopia. Vodacom joined forces with Vodafone and Safaricom to form the consortium that successfully placed a bid for a licence in the east African country.
Speaking about Vodacom’s expansion in Africa, Joosub said the company’s footprint in Ethiopia and Egypt “are quite transformational for the group. We now have access to 500 million people across the continent and just over 40% of the GDP of the continent. So it is meaningful. But we are not in the business of planting flags.”
Takaendesa said the expansion of MTN and Vodacom across the continent will probably not raise red flags because competition is “a country by country issue”. Vodacom’s move into Egypt will not change the market structure, Takaendesa said, because it is merely a shareholding change.
But, he added, Vodacom’s fintech operation may see it coming head-to-head with regulators.
“That is where the telcos could have issues, especially as they continue to invest more in mobile money … At the end of the day, regulators are going to look at it and say: ‘Well, most of the consumers are moving towards data and mobile money, so how can we participate in that?”
In 2017, Vodacom acquired a 35% shareholding in Safaricom, Kenya’s largest cell phone firm. Together the two companies bought cell phone-based money transfer service M-Pesa from Vodafone last year.
The M-Pesa app rollout, along with the commercial launch of its cell phone e-commerce app VodaPay last month, has seen Vodacom become Africa’s largest fintech platform by subscribers. According to Vodacom’s interim results, M-Pesa’s revenue was up 45.8% for the six-month reporting period.
“Essentially we are now building our products in one place and then replicating them across our markets. I think that is very compelling,” Joosub said.